Energy

Surrounded by hardened fan manufacturers in the city of Gujranwala, 70 kilometers north of Lahore, the task facing our World Bank Group team was to convince them that more efficient fans, to be promoted through an energy-efficiency labeling program by Pakistan’s government, would be beneficial to the sector as a whole. Questions abounded about how regulations can help competitiveness, and about whether small and lower-tier manufacturers might be left out of the equation. How would labeling be enforced, and how would forgeries be kept off the market?

Fast-forward 12 months to an IFC advisory project, which the government has set up for the procurement of 20,000 Pakistan Energy Label (PEL) energy-efficient fans in public buildings. Those fans will save the country an estimated 800,000 kilowatt hours – the equivalent of the annual energy use of about 600 domestic refrigerators – translating to about 400 tons of greenhouse gas (GHG) emissions reduction per year.

The project has created a new market segment for manufacturers of more efficient fans, nine of whom have received certification for the PEL from the National Energy Efficiency and Conservation Authority (NEECA). The fact that four fan manufacturers out of these nine are from the small and medium-sized enterprise (SME) sector is a positive indication of wider acceptance of this standards and labeling initiative.

Photo by Etiennne Kechichian

In time for the region’s next hot season, the request for more information and knowledge about energy-efficient fans has increased. The government of Punjab, as well as NEECA, has launched a comprehensive marketing campaign to promote these PEL fans and to improve the public’s knowledge about their benefits. In a market where heavy, inefficient cast-iron fans are considered good quality, changing perceptions requires coordination with technicians, real estate developers, retailers in the streets of Lahore and the countryside, and a deep understanding of the market.

The concept of market transformation is at times abstract – but we’ve seen signs in this relatively small project, implemented by the Trade & Competitiveness (T&C) Global Practice of the World Bank Group, that targeted and client-based interventions can have a significant impact on the competitiveness of an industry.

“No one can tackle climate change alone.” Those words, by Abdelouahed Fikrat, General Secretary of the Moroccan Ministry of Environment, aptly summarized the challenge that we face today in dealing with climate change. He made that declaration at the recent Dialogue for Climate Action event in Vienna, organized by The World Bank Group and the Government of Austria on May 24 and 25.

The Vienna event marked the launch of six Principles on Dialogue for Climate Action — a set of tenets aimed at guiding businesses and governments as they embark on productive conversations on how to cooperate effectively to fight climate change.

The World Bank Group and 12 international partners got together to collaboratively formulate the six principles: Inclusion, Urgency, Awareness, Efficiency, Transparency and Accountability.

In endorsing the principles and signing on to the Community of Practice (CoP) for Dialogue for Climate Action, Fikrat said, “The principles of dialogue launched at this event hold potential to contribute significantly to the COP 22 agenda and offer a tool to policymakers for engaging the private sector. We need to build on the current momentum to speed up the implementation of concrete actions.”

The tone for the event was set by Dimitris Tsitsiragos, Vice President of the International Finance Corporation (IFC), who stressed in his keynote address that “stopping the catastrophic impact of climate change requires urgent, comprehensive and ongoing public-private dialogue”.

Dialogue for Climate Action in Practice

So what does this mean in practice? How do we avoid pursuing a dialogue that is devoid of action? There is significant pressure on all actors to avoid “post-Paris blues” and stagnation. There is also a need to avoid actions in a vacuum, where everyone is doing something but without cohesion and coordination.

The six principles for climate action are based on the premise that all actors, working together, will create greater results. Bangladesh PaCT (Partnership for Cleaner Textiles), a project managed by the World Bank Group, makes a strong case for that approach. The project, which was launched in 2013, aims to introduce cleaner, more environment-friendly production methods in the textile sector, and dialogue is a key pillar of its project design.

To tax, or not to tax? That is the question that preoccupied a thought-provoking panel at a recent World Bank Group conference on “Winning the Tax Wars” – along with such pragmatic policy questions as: What products and behaviors should be taxed, aiming to discourage their use? How heavily should taxes be imposed to penalize socially destructive behaviors? If far-sighted, behavior-nudging taxes are indeed adopted, where should the resulting public revenue be spent?

The Bank Group conference, however, explored tax-policy issues that ranged far beyond the headline-grabbing disclosures about the scheming of rogue law firms and accounting firms, like the now-infamous Panama-based Mossack Fonseca and other outposts of the tax-dodging financial-industrial complex. Conference-goers also heard intriguing analyses about how society can levy taxes on “public ‘bads’ ” to promote investment in “public ‘goods’ ” – as part of the broader quest for broad-scale tax fairness.

Questions like those – focusing on the private sector as the principal driver of growth, with deft public policy as an indispensable catalyst – inspired a dialogue among some of the developing world’s most experienced policymakers at a major forum, “Powering Up Growth: Ideas for Beating the Slowdown,” during the recent Spring Meetings of the World Bank Group and the International Monetary Fund. All four government Ministers on the panel – from both commodity-exporting and -importing countries – voiced a sense of urgency, describing their efforts to attract private investment to spur job creation, amid a global economy that seems destined for prolonged weakness.

Before the policymakers ascended the Preston Auditorium stage, sobering updates had arrived from the Bank and the Fund: The Bank’s latest forecast for global growth has been lowered from 2.9 percent to 2.5 percent – with the caveat that this latest forecast is subject to further downside risks. That downward revision is in parallel with the Fund’s similar projection, which sees global growth this year in the neighborhood of just 3 percent.

Policymakers worldwide are eager to explore any option to try to lay the foundation for an eventual return to a long-term economic expansion. It was clear that the panelists in the “Powering Up Growth” event – which was convened by Jan Walliser, the Vice President for the Bank Group’s practice group on Equitable Growth, Finance and Institutions (EFI) and organized by the Global Practice for Macroeconomics and Fiscal Management (MFM) – were focused on long-term structural changes that can energize the private sector’s ability to drive growth.

Powering Up Growth: Ideas for Beating the Slowdown

The panelists – from Bolivia, Pakistan, Angola and Ukraine – represented countries from different regions and at various levels of economic development, but they shared a determination to jump-start growth through reforms that will strengthen the private sector’s long-term confidence. The Ministers, at times, seemed to envision opportunities, not just for short-term structural adjustment of their priorities or medium-term structural reform of their policy farmeworks, but for far-reaching structural transformation of their economies and societies.

As I was landing in Juba, the bustling capital of South Sudan, I couldn’t help but reminisce about my days working in Khartoum for the UN Deputy Special Representative of the Secretary General. The war between the North and the South, of what was then, in 2004, still the Sudan, was raging as the peace negotiations were taking place in a plush resort on the shores of Lake Naivasha in Kenya. I was mainly focusing on guaranteeing access to the people of the Nuba Mountains, one of the three fiercely contested areas between Khartoum and the Sudan People’s Liberation Movement/Army (SPLM/SPLA). I was doing my fair share of shuttle diplomacy, going back and forth between the SPLM/SPLA leadership based in Nairobi and the Government of Sudan in Khartoum. At that time, hopes were high that one would soon see the end of decades of a bloody war in Africa’s largest country. The Comprehensive Peace Agreement was finally signed in 2005. In 2011, South Sudanese participated in a referendum and 99 percent voted for independence. South Sudan became the newest country in the world.

But what should have been a new era of peace and prosperity quickly turned into a feeling of dejà vu. Dreams were shattered as a new internal violent conflict broke out in December 2013, putting the progress achieved at significant risk and disrupting economic activities and livelihoods.

The country is very rich in natural resources, including oil, minerals and fertile arable land. However, with 90 percent of its population earning less than US$1 per day, South Sudan is ranked as one of the poorest countries on the planet. South Sudan remains an undeveloped economy facing important challenges, including high unemployment, weak institutions, illiteracy and political instability. The economic overview of the country by the World Bank suggests that “South Sudan is the most oil-dependent country in the world, with oil accounting for almost the totality of exports, and around 60 percent of its gross domestic product.” The conflict has dramatically affected the production of oil, which has fallen by about 20 percent and is now at about 165,000 barrels per day. This, combined with the sharp global drop in oil prices, has greatly affected the fiscal position of the government.

In such an environment, private sector development is a must, since it has the potential to create market-led jobs and growth. However, private sector growth requires a conducive investment climate and an enabling business environment.

South Sudan has made progress in this area, thanks in part to support from the international community, including the World Bank Group. Yet more needs to be done. South Sudan ranks 187th out of the 189 economies in the Doing Business ranking, just ahead of Libya and Eritrea. In addition, among the top constraints reported by firms in the World Bank Group's Enterprise Survey, 68 percent mention political instability and 58 percent cite access to electricity, followed closely by access to land and finance.

Optimism seems to be steadily increasing as diplomats continue to negotiate a global climate-change deal. The hope is for an ambitious agreement at the so-called COP 21 conference – the 21st gathering of the Conference of Parties in the climate-change negotiations. The question, however, is how ambitious that pact will be.

As Rachel Kyte – the World Bank Group Vice President and Special Envoy on Climate Change – pointed out in a start-of-September forum at the World Bank: “I think that everything is in place for a deal to be struck in Paris, a deal that is universal, that brings everybody in to the table. . . . So a universal deal, a universal framework . . . is possible. The question, I think, is how strong a deal it's going to be.”

Rachel Kyte on Climate Action

As the clock ticks down to the deadline for a deal in Paris, Kyte (in conversation with Kalee Kreider of the United Nations Foundation) offered a detailed analysis of the intricacies surrounding the final stages of the negotiations: “The question, really, now is the level of ambition, the strength of that deal. And that's politics, not science. That's politics, not economics.”

So much for the myth that Washington empties out during the month of August. A standing-room-only throng flocked to a Monday-morning Brookings Institution seminar this week featuring a relative newcomer to the think-tank community – Ben S. Bernanke, the former chairman of the U.S. Federal Reserve System. His wide-ranging and nuanced analysis – with all the gravitas that he once brought to his graduate economics seminars at Princeton – explored not just Brookings’ main topic of the day (“The Defense Economy and American Prosperity”) but also such subjects as macroeconomic management, the gradual recovery from the Great Recession, and lawmakers’ need to avoid hasty budget-cutting that would damage vital investment in long-term priorities. Offering some of the wit of his new blog for Brookings, Bernanke’s whirlwind analysis whetted Washingtonians’ appetite for the October 4 publication of his latest book, “The Courage To Act.”

The economic impact of U.S. military spending was the focus of Monday’s seminar, chaired by Brookings defense-policy scholar Michael O’Hanlon – but an additional, broader theme was unmistakable throughout the discussion. The competitiveness of every economy is shaped by its ability to make sustained investments in productivity-enhancing technologies – and, as the panelists explored within the context of the U.S. economy, R&D-intensive industries (whether military or civilian) have been on the leading edge of innovation, patenting, productivity growth and job creation.

Competitiveness is the holy grail of economic policymakers everywhere – and activist strategies can help every economy hone its competitive edge. For both theorists and practitioners in development, working with economies large or small, the Brookings panel’s focus on pursuing far-sighted and pro-active investment strategies holds implications for every country’s competitive positioning.

Industries account for nearly one-third of direct and indirect global greenhouse-gas emissions, and they will be playing an increasingly important role in achieving the global targets expected to be set at the international climate summit in Paris in December. For example, the cement (5 percent), chemicals (7 percent) and iron and steel (7 percent) sectors account for nearly one-fifth of all global greenhouse-gas emissions, and those sectors have significant potential to reduce those emissions.

Tackling climate change by focusing on industries has long been a contentious issue. Some industries claim that regulation will impede economic growth by imposing additional burdens on competitive sectors. In some cases, they have an argument; but, if it is designed well and adapted to the context, a smart and timely intervention can influence a socially and economically positive systemic change.

Many businesses themselves, by pursuing cost-effective, long-term, environmentally sustainable production, long ago realized that “going green” can be highly advantageous, and they have been taking a pro-active approach toward addressing the issue precisely because it makes business sense. One group of global business leaders – including Unilever, Holcim, Virgin Group and others – have taken their commitment further by encouraging governments to lend their support for net-zero emissions strategies by 2050.

Even in developing countries, companies like Intel are investing millions of dollars in energy efficiency to save on current and future energy costs. The company has already saved $111 million since 2008 as a result of $59 million worth of sustainability investments in 1,500 projects worldwide.

Source: New Climate Economy 2014; World Bank World Development Indicators

The sentiment that climate action by both the private sector and the public sector is urgent was also an important theme highlighted by World Bank Group President Jim Kim during January's World Economic Forum conference in Davos. Mitigation measures, such as energy-efficiency policies, have long been seen as a way to improve profits and manage risks. The logic for energy efficiency, a key set of abatement actions by the manufacturing sector, is there.

The recent New Climate Economy initiative, produced by the Global Commission on the Economy and Climate, estimates that at least 50 percent – and, with broad and ambitious implementation, potentially up to 90 percent – of the actions needed to get onto a pathway that keeps warming from exceeding 2°C could be compatible with the goal of ensuring the competitiveness of industries.

A new global network of Climate Innovation Centers will support the most innovative private-sector solutions for climate change.

Pop quiz: What does an organic leather wallet have in common with a cookstove for making flatbread and a pile of recycled concrete?

Believe it or not, each of these represents something revolutionary: a private sector-driven approach to climate change. Each of these products – yes, even concrete – is produced by an innovative clean-tech company. And as of March 26th, those businesses, and hundreds more like them, have something else in common. They’re connected through infoDev's newly established global network of Climate Innovation Centers (CICs), an innovative project that is taking the idea of green innovation beyond borders.

Having piloted the CIC model in seven different countries – Kenya, South Africa, the Caribbean, Ethiopia, Morocco, Ghana and Vietnam – it was time for infoDev, a global entrepreneurship program in the World Bank Group’s Trade and Competitiveness Global Practice, to follow a time-honored business practice: to scale up and take this movement global.

And so, as part of last month’s South Africa Climate Innovation Conference, we joined forces with 14 experts from the seven different countries where the CICs operate to establish the foundations of the world’s first global network devoted to supporting green growth and clean-tech innovation.

CIC staff debate and discuss the new CIC Network during the South Africa Climate Innovation Conference.

This global network of Climate Innovation Centers – business incubators for small and medium-sized enterprises (SMEs) – has been designed to help local ventures take full advantage of the fast-growing clean-technology market. The infoDev study “Building Competitive Green Industries” estimates that over the next decade $6.4 trillion will be invested in clean technologies in developing countries. An even more promising fact is that, out of this amount, about $1.6 trillion represents future business opportunities for SMEs, which are important drivers of job creation and competitiveness in the clean-tech space.

In 2013, investment commitments to infrastructure projects with private participation declined by 24 percent from the previous year. It should be welcome news that the first half of 2014 (H1) data – just released from the World Bank Group’s Private Participation in Infrastructure (PPI) database, covering energy, water and sanitation and transport – shows a 23 percent increase compared to the first half of 2013, with total investments reaching US$51.2 billion.

A closer look shows, however, that this growth is largely due to commitments in Latin America and the Caribbean, and more specifically in Brazil. In fact, without Brazil, total private infrastructure investment falls to $21.9 billion – 32 percent lower than the first half of 2013. During H1, Brazil dominated the investment landscape, commanding $29.2 billion, or 57 percent of the global total.

Four out of six regions reported declining investment levels: East Asia and the Pacific, South Asia, Africa, and the Middle East. Fewer projects precipitated the decrease in many cases. Specifically, India has experienced rapidly falling investment, with only $3.6 billion in H1, compared to a peak of $23.8 billion in H1 of 2012. That amount was still enough to keep India in the top five countries for private infrastructure investment. In order of significance, those countries are: Brazil, Turkey, Mexico, India, and China.

Sector investments were paced by transport and energy, which together accounted for nearly all private infrastructure projects that were collected in this update. The energy sector captured high investment levels primarily due to renewable energy projects, which totaled 59 percent of overall energy investments, and it is poised to continue growth due to its increasing role in global energy generation.

The energy sector also had the biggest number of new projects (70), followed by transport (28), then water and sewerage (12). However, transport claimed the greatest overall investment, at $36 billion, or 71 percent of the global total.

While we need to see what the data for the second half of 2014 show, what we have to date suggests that infrastructure gaps may continue to grow as the private sector contributes less. It also suggests that, in many emerging-market economies, there is much work to be done to bring projects to the market that will attract private investment and represent a good deal for the governments concerned.